FX Action: USD-JPY topped out at 119.49 FX Action: USD-JPY topped out at 119.49, following the greenback broadly higher. Traders reported some short covering ahead of Friday's busy Japan economic calendar, which took some pressure off the pairing, while the uptick in Treasury yields was helpful as well, though from 19.50 up to 120.00, standing offers are reportedly moving in. Tuesday's 119.83 peak will be the first test, with a break there opening up the February 12 peak of 120.37.

13:15 EDT

Treasury Action: yields bounced through highs Treasury Action: yields bounced through highs following the mediocre takedown on the 7-year auction, which tailed out a tad and had mixed underpinnings. That hijacked a potential relief rally with the series out of the way for the week, driving the current 7-year yield out over 1.83% compared to morning lows of 1.747% and the 1.834% award rate on the new notes. The benchmark 10-year yield cleared 2.0%, with the cash bond testing 2.60% as well.

Treasury 7-year auction outlook: Treasury 7-year auction outlook: the $29 B 7-year sale completes this week's batch of offerings which have seen decent to good demand, especially from indirect bidders. Today's sale should be similarly well bid from said account, especially with the German 7-year having turned sub-zero. Also there could be some front running of month-end trades since there is a big extension in February (a refunding month). Additionally, the wi 7-year has cheapened 3 bps to 1.815% -- however, a stop there would be the second richest levels in years and that could leave some potential buyers sidelined. The auction could be on the sloppy side however, thanks to some big price swings since the open. Additionally, the 7-year has tailed in the last five auctions. The January auction was awarded at 1.59% and garnered a 2.50 cover (2.54 average) and a 56.1% indirect bid (47.8% average).

SF Fed dove Williams sees full employment reached this year SF Fed dove Williams sees full employment reached this year in impromptu remarks earlier with Fox, saying as well that its important to to look at underlying inflation trends, with core inflation relatively stable. He sees the stronger labor market in turn leading to wage growth and 2% inflation by the end of next year. Williams thinks that some accommation should be removed before analysts get to full employment and 2% inflation, accordingly seeing a first hike some time this summer or fall. He also believes the Fed needs to get away from explicit forward guidance on the rate path. This is relatively hawkish for this voter, but roughly in line with the bulk of recent Fedspeak on the cycle.

Treasury Action: TIPS and breakevens are rallying again today Treasury Action: TIPS and breakevens are rallying again today, extending recent gains, with shorter maturities outperforming. The 5-year breakeven is up 10 bps since Tuesday to 156 bps. The long end is lagging a bit but is picking up steam given some front running of the big 0.15 year month-end extension tomorrow given a possible squeeze. Traders are overlooking the largest decline in headline CPI since 2008, and instead are focusing on the 0.2% increase in the core and the steady 1.6% y/y figure. Additionally helping underpin the move have been the rally in copper and signs that gas prices have bottomed. Fed officials have also maintained their mantra that the drop in consumer prices is transitory. Indeed, the hawkish Bullard said earlier today that the rise in core CPI bolsters confidence that inflation will be rising.